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How Much Money Should I Budget for Health Insurance in My Retirement?

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If you’re about to retire, making sure you have adequate health insurance for retirees may be one of your top priorities. According to the National Library of Medicine, health care costs increase exponentially after age 50.

Medicare is one common option for health insurance for retirees. According to the Centers for Medicare and Medicaid Services (CMS) over 60 million people were enrolled in Medicare at the end of 2018. Keep in mind that Medicare is not exclusively health insurance for retirees and your Medicare eligibility is generally not determined by your employment status. In fact, in some cases, you may have Medicare coverage while you are still working.

If you are trying to figure out how much to budget for health insurance after you retire, you might consider your Medicare premiums, deductibles, and copayments/coinsurance.

Health insurance for retirees: premiums

A premium is an amount you pay monthly to have health insurance, whether or not you use covered services.

Medicare Part A is hospital insurance. Most Medicare beneficiaries don’t pay a Medicare Part A premium. However, if you not eligible for premium-free Medicare Part A, you may pay up to $437 a month in 2019. You could pay up to $5,244 a year for Medicare Part A. This amount may rise from year to year.

Medicare Part B is medical insurance. The monthly premium for Medicare Part B in 2019 is $135.50. That means that for the year 2019 you may pay $1,626 for medical insurance for retirees. The Medicare Part B premium was $134 a month in 2018. In 2016 the Medicare Part B premium was $121.80. Since the Medicare Part B premium could rise each year, you may want to budget more than $1,626 for each year you expect to have Medicare Part B insurance.

Medicare Part D is prescription drug coverage. A stand-alone Medicare Part D plan offered by a private insurance company can go alongside your Medicare Part A and Part B insurance. Most stand-alone Medicare Part D plans charge a monthly premium. According to the Centers for Medicare and Medicaid Services (CMS) the average basic Medicare Part D stand-alone plan premium is $32.50. This means that you could pay $390 a year for Medicare Part D coverage.

Medicare Part C is Medicare Advantage. A Medicare Advantage plan covers your Medicare Part A and Part B insurance and often includes prescription drug coverage as well. Some Medicare Advantage plans have $0 premiums. However, CMS reports that the average Medicare Advantage premium in 2019 is $28. You may still have to pay your Medicare Part B premium when you have a Medicare Advantage plan.

Many factors go into how much you will pay for premiums for health insurance for retirees, but here are two possible scenarios:

  1. You have Original Medicare and a stand-alone Part D prescription drug plan, for example:
Coverage Monthly Premium Total Yearly Premium Costs
Medicare Part A $0 $0
Medicare Part B $135.50 $1,626
Medicare Part D $32 $390

Total spent in a year on health care premiums: $2,016

  1. You have a Medicare Advantage (Part C) plan that includes prescription drug coverage, for example:
Coverage Monthly Premium Total Yearly Premium Costs
Medicare Part C $54 $648
Medicare Part B $135.50 $1,626

Total spent in a year on health care premiums: $2,274

Health insurance for retirees: deductibles

A deductible is an amount you pay before your insurance begins to pay.

In 2019 the Medicare Part A deductible was $1,364 for each benefit period. There is no limit to the number of benefit periods over your lifetime. It might be possible to have four or more benefit periods in a single year if you keep being discharged and readmitted as an inpatient to a hospital or skilled nursing facility. This means your deductible costs for Medicare Part A could be $5,456 or higher in 2019.

In 2019 the Medicare Part B deductible for a year is $185.

Medicare Part C and Part D plans may also have deductibles, which can vary depending on the plan you have and the insurance company you bought it from. In 2019 a stand-alone Medicare Part D plan can’t have a deductible over $415. Some plans don’t have a deductible.

Here is a scenario of how much you could pay in deductibles in 2019 if you have Original Medicare and stand-alone Part D plan:

Coverage Deductible
Medicare Part A (two benefit periods) $2,728
Medicare Part B $185
Medicare Part D $415

Total spent on deductibles: $3,328

Health insurance for retirees: copayments and coinsurance

A copayment or coinsurance is an amount you pay when you receive a service. Some preventative services under Original Medicare may not charge a copayment or coinsurance. Some Medicare Advantage plans may not charge a copayment for primary care doctor visits.

For Medicare Part A, you generally pay a coinsurance (or all costs) for days you spend in the hospital beyond day 60.

For Medicare Part B, you generally pay coinsurance of 20% of the Medicare approved amount for most doctor services, outpatient therapy, and durable medical equipment, such as wheelchairs.

For Medicare Part D, you generally pay a copayment or coinsurance whenever you fill a prescription. The amount of the copayment or coinsurance generally depends on the “tier” the prescription drug is on. You may pay $6, for example, for a tier 1 preferred generic prescription drug and $30 for a tier 3 preferred brand prescription drug.

Here is an example of what you may pay in 2019 for copayments/coinsurance if you have Original Medicare:

Coverage Copayment/Coinsurance
Medicare Part A: 63 days the hospital $341/day times 3 days = $1,023
Medicare Part B: 20% of a $200 wheelchair $40
Medicare Part D: 12 months of a prescription drug with a $30 copayment $360

Total copayments: $1,423

Keep in mind that what you actually pay in copayments/coinsurance may depend on your individual health care needs.

Getting additional health insurance for retirees

Unlike some other types of health insurance plans, Original Medicare (Part A and Part B) has no out of pocket maximum. Medicare Part A (hospital insurance) generally doesn’t pay for your inpatient hospital days after your lifetime reserve days are used up or skilled nursing facility care costs beyond your 100th day. For both inpatient hospital care and skilled nursing facility care, you may have a coinsurance payment that can add up to thousands of dollars. Having a serious illness is concerning enough without worrying that your health insurance for retirees won’t cover your care.

Some people get peace of mind about their health care costs by getting a Medicare Supplement (Medigap) plan. Medicare Supplement plans pay certain out-of-pocket costs including coinsurance, copayments and deductibles. Some Medicare Supplement plans (K and L) even have out-of-pocket maximums.

There are up to 10 Medicare Supplement plans labeled with letters A, B, C, D, F, G, K, L, M and N. Different plans may cover Medicare out-of-pocket costs to different extents, but they all cover 100% of the Medicare Part A coinsurance and hospital costs up to an additional 365 days after Medicare benefits are used up. If you face an extensive hospitalization, this coverage may save you thousands of dollars in out-of-pocket costs.

In addition, some Medicare Supplement plans may cover Part B coinsurance or copayment, blood, Part A hospice care coinsurance or copayment, skilled nursing facility care coinsurance, Part A deductible, Part B deductible, Part B excess charge, and foreign travel emergencies up to plan limits.

To learn more about Medicare Supplements in your area, enter your zip code on this page.

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